Energy Business

Oil Massively Underperforms the S&P 500: Buy These 4 High-Yielding Giants

Exxon Mobil

This remains a top Wall Street energy pick and is another safer long-term play for conservative investors. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products. Note that Exxon has one of the highest paid American CEOs.

The company reported mixed second-quarter results that did have positive trends, and Merrill Lynch noted this:

Another quarter of heavy maintenance masks an emerging inflection in liquids growth, and expanding upstream cash margins. Cash flow continues to lag capital expenditures and dividends; we see no issue as spending to double cash flow does not match the timing of asset sales. Maintenance is transitory; the company is clear about preparedness to lean on the balance sheet until cash flow catches up.

Exxon raised the dividend earlier this year by a nickel per share to $0.82. That now translates to a solid 4.95% dividend. The $100 Jefferies price objective is well above the $83.92 consensus target price. The stock closed on Monday at $70.28 per share.

Royal Dutch Shell

This is a top international play for investors looking to add energy exposure and is yet another company that posted solid results. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and natural gas liquids.

Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.

In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, LNG for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

Investors receive a huge 5.60% dividend. Jefferies has set its price objective at $78. The consensus figure is higher at $81.64, but the shares closed Monday at $57.07 apiece.

The Jefferies team also pointed out this week when noting the huge underperformance of oil this year that following the 2015 low in the sector, the SPDR S&P Oil and Gas Exploration and Production ETF delivered about 30% outperformance compared with the S&P 500 over the following four months. Should that happen again, those buying energy shares now may be in for a big win this fall.

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